GLOBEX Cancellation Fees at Interactive Brokers

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This evening I received the following message from IB:

"The Chicago Mercantile Exchange (CME) will be introducing new cancellation fees and, as of June 1, 2005, IB will be charging $1 for each CME cancellation with a credit of $5 for each CME executed trade. Execution credits are applied against cancel or modify fees for the day. Execution credits cannot be greater than cancel/modify fees."

First of all, I have a few questions for the IB employees who answer IB related questions at EliteTrader:

1. When will the CME introduce their new cancellation fees?

2. How much are the actual CME cancellation fees?

3. Will IB charge a cancellation fee for stop orders (on Globex futures contracts) that are managed by IB's servers, as opposed to the native stop limit orders that are held on Globex?

4. What is the reasoning or justification behind CME's cancellation fees?

5. How did IB arrive at it's credit / fee program?

My take on the effect of CME's cancellation fees are that it will reduce the number of limit orders placed on Globex, and hence reduce liquidity.

It will also reduce the stop limit orders held on Globex, which should reduce volatility a little bit.

Overall, as the cost of trading at Globex has gone up, a reduction in trade volume should be expected.

Traders may also now find eCBOT's YM futures contract relatively more interesting now, as there currently are no cancellation fees on the eCBOT.

Comments IB? Anyone else?
 
This might shed some light on the fees charged. In particular, see the reference to how many modifications you can make per trade.
I received it from ButtonTrader, so just ignore the reference to them. I'm not associated with BT, just a very happy user:-

www.buttontrader.com


Dear ButtonTrader Traders,

IB has sent you a Notification about the new Globex policy to use Modify/Cancellation fees. You probably want to know, if this policy will have a negative effect on your trading results, and if so, how ButtonTrader can help you to minimize or avoid these effects.

First you have to understand that these fees are meant to oppose spoofers and automated trading systems that manipulate the book by entering irrational orders without the intention to executed. And it will effect auto-spreading systems, which are chasing the market without executing but slowing down the Servers at the exchange.

In most cases, when performing normal day trading, it will not really effect your results. The debit and crediting system, used by IB, will be computed on a daily basis. So at the end of day the Orders that were modified or Cancelled are counted against the number of executions. For Globex every execution credits $5 and every modify/cancel debits $1. So when using a Strategy with 3 native Globex Orders: (Open, Target and StopLimit), it will take 2 executions, and one OCA-cancel, makes $5 + $5 - $1 = $9. That effectively means that you can do 9 modifications before getting a negative fee-result. Most traders will not modify every trade 9 times, and when trading many more turnarounds a day, this fee-balance will become more positive (which makes an occasional trade of 20 modifies no problem at all).

Still….. There are cases where these fees can become an issue. When using Trailing-Strategies with stop-limit orders, then every trail-step will result in a modification. And some traders have a trading style of often modifying the Open, Target and Stops.

What to do about this? And how can ButtonTrader help?

First: remember that these fees are ONLY counted for Native Globex orders. So if you use the ButtonTrader-Simulation Orders and/or the IB-simulation Orders in your Strategies, you will not be charged. For Globex the Native Orders are: Limit-Orders and StopLimit Orders.

Open and Target Orders

In ButtonTrader, the Limit and Market Orders are used for the Open and the Target. When your trading style needs many modifications for Open and Target, then we advise you to use the ButtonTrader feature "Wait-till-hit". That will give you a price-range between the market-price and the Order-Price. You can modify this range as much as you like: it will not result in a send until the moment the market hits the price. Below you see a screenshot of such a Strategy. The yellow buttons are the "wait-till-hit" buttons, and you can modify them as you please (see the Reference Guide page 89 for more info).



In this example the dark-beige colored T, x and X-buttons are sent to Globex so you are protected. And the yellow "wait-till-hit" modifications stay at your PC until the moment of hit.



Close Orders

When you are not using the Trail and Break-even strategies, then you can use the "wait-till-hit" feature for the Close as well.

When you are using Trail-strategies, and it proves that your trading style is charged daily with modification-fees, then it might be a good to consider using the TRAIL-STP in stead of the TRAIL-STPLMT versions. The Stop is not Globex Native.







In ButtonTrader, you can monitor the modification-fees in real-time in the Budget Windows. This is already implemented for DTB/EUREX trading, and will be as well for Globex trading when effective (at June 1).



The Simulation-account shows this as well, so when you have doubts if your trading style and use of a specific Strategy will incur substantial negative results, then you are able to test it in simulation.

We strongly recommend trading as usual for a day (or more) and checking your fees. If this modification is hurting your results, then simply adjust your ButtonTrader strategies as described above.

Brad
 
IB will not be implement the CME-Globex Cancellation Fees at this time, as the CME has postponded implementation of their messaging policy.
 
When will the IB customers be receiving notification of this as we did for the fees to be started in the first place?

Thanks,
Jim
 
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